Concept explainers
1)
Case summary:
Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.
Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs
Here are the net cash flows (in thousand $)
To determine: The payback period and its meaning.
2)
To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.
3)
To determine: The variance among the regular and discounted payback periods.
4)
To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.
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Intermediate Financial Management (MindTap Course List)
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